Since May 2018, no Latvian bank has opened accounts with either offshore companies or shell companies (for example, partnerships from Scotland or the United Kingdom).
The Cabinet of Ministers upheld the draft amendments to the AML/CFT Law on money laundering and combating the financing of terrorism, aimed at strengthening the financial system of Latvia by reducing the number of risky transactions with high-risk customers that meet the definition of the shell company. The bill is also intended to increase the exchange of information between regulators (financial institutions and law enforcement agencies).
A new article will be added to this law, prohibiting financial institutions from cooperating with organizations that demonstrate signs of a shell company.
In early June 2018, Cyprus announced the same intentions to close accounts for all offshore and shell companies.
What is a shell company?
According to the bill, the shell company is defined as a subject corresponding to one or more of the criteria described below:
- cannot prove their economic activities, i.e. economic activity of such companies is zero, and there are no documents that would prove the opposite;
- company registration in countries that do not require financial reporting;
- the company is exempted from paying taxes;
- as well as those companies that do not have an actual office location, where they must carry out their entrepreneurial activities.
According to the Ministry of Finance, the first two criteria are decisive in determining the risks (AML/CFT) associated with shell companies. Therefore, the Ministry suggests that the ban on doing business with the shell companies should be applicable to entities that meet all of the above criteria at the same time.
The proposed prohibition does not apply to legal entities registered in Latvia, because Latvian legislation requires them to prepare financial statements, including annual financial statements, and submit them to government authorities.
The bill is aimed at limiting the possibility of using the financial system of Latvia to move dirty money. Financial institutions will also have to take measures to reduce their risk profile.
When does the bill come into force?
The bill was declared urgent, which means that it will enter into force on the day after its promulgation. The Latvian parliament has not yet voted to adopt the proposed legislative amendments.
What to do now?
These changes were quite expected.
We have been holding business breakfasts and seminars in SBSB since 2017, where we warn our clients about future changes in the field of deofshorization, and we also instruct what to do in this case.
You can always find new work options, you can always register a company in the optimal jurisdiction with a comfortable tax climate and low taxes (and not their absence).
We are happy to advise you on what to do if the bank has closed the account of your offshore or shell company.